In the early days of my business, I was advised to get it ready to sell. Specifically, to ensure optimal systems and processes were in place because, even if not selling, it would make my business a more profitable venture.
In a recent conversation with fitness business sales specialist, Cameron Prosser of BF Brokers, he provided fantastic insight into what makes a business more valuable when selling (and more profitable to operate).
Whether you're a sole trader or own multiple clubs, there is information in this post that will put money in your pocket. Enjoy.
Key Areas to Focus on When Selling Your Fitness Business
To make a business more valuable to sell, Cameron points to five key topics that anyone selling their business should focus on:
- Staffing
- Lease
- Service Offering
- Expenses
- Marketing
- Bonus Tip for Trainers in a Rental Model
1. Staffing
- Have a standard agreement form for all staff. Contracts must be clear about holiday pay, annual leave, and long service leave.
- Document all key roles with responsibilities clearly outlined.
- Ensure everything is process-driven so that anyone can step into a role. Avoid 'personal' systems (yours or staff) for handling anything.
- Dennis' Tip: We use a website called Process.st. It's like an interactive operations manual.
Remember that on the sale of the business, staff contracts are likely to be null and void, and the new owner will have to rehire all staff. Ensuring contracts are in place and ready to renew is a good way to add extra value. Be ready to pay for any outstanding leave entitlements or expect to reduce the sale price of the business to suit a rollover of the contract.
2. Lease
- Personal Training Studio: An optimal lease is a 3x3x3 (three years with an option to renew for another three years, and then an option for a further three years).
- At the end of the first three years, negotiate for the next 3x3x3 to give the greatest possible security for a buyer.
- Larger Facilities: A 5x5 arrangement is best (five years with an option to renew for another five years).
Ultimately, the longer the lease, the greater the value of your business. Evaluate CPI or annual rent increases when taking up every new option to ensure they're fair. Ensure any money held as a bond is fair and reasonable to reduce the likelihood of a bond increase on lease transfer becoming too onerous for the buyer.
3. Service Offering & Client Value
Knowing your market and what you provide is paramount.
It influences your marketing, prices, service, and more. When selling your business, it's also valuable to the potential purchaser. Consider the following:
- What's your target market and why would someone come to you?
- Who you are to your market and who are your key clients?
- What's the average net worth of each client?
- What is your USP in relation to competitors?
- Retention rates
- The ratio of Direct Debit to Upfront memberships.
The clearer you are on each of these points, the easier it is for any potential buyer to see where the income for the business is coming from.
If you're ready to sell, consider upgrades to facilities and services, or at least understand the cost associated with fulfilment. The purchaser will use these requirements to reduce the sale price. Determine if the business requires an owner-operator or if it can be run under management.
When determining client value, working in cash is NOT optimal. It provides no idea of the business turnover and is no good if you want to sell. If you must use cash, it should be in a systematic manner so your business can be better valued. Clients on direct debit are your most valuable clients, indicating a steady income and easier future earnings projection.
4. Expenses
Less is more. Period.
Your three greatest expenses, as a percentage of your gross revenue, are likely to be your building lease, staffing costs, and equipment leasing. A saving as little as $100 a week will add $5,200 to the bottom line and increase the value of your business by ~$15,000 (using a 3x multiple of EBITDA).
5. Marketing
What is your marketing plan, what do you spend, and is it working?
More than just the marketing plan, have data around the return on that plan. This information highlights expenses that may be removed as ineffective in attracting members or others that have worked and should be increased. Collect as much data as possible. If you're unsure, find out what metrics you should be capturing and how best to capture them.
Bonus Note for Rental Trainers - Try to Sell/Transfer Your Clients
Getting some return from your efforts to build a steady and reliable client base is a reasonable aim. Cameron suggests:
Find a Trainer/buyer best suited to your clientele and begin introducing them to your clients under an agreement that you receive a percentage of revenue from each client introduction over a set period, maybe three months. This way, the incentive for the seller to have the client maintain their training with their new Trainer is higher, resulting in a more successful turnover for the buyer.
If you'd like to talk to Cameron about buying or selling a fitness business, reach out to him via his office on 03 8823 5400.